Welcome to Trade Settlement and Corporate Actions: the mechanics of how trades finalize and how corporate events affect your securities.
Exam Weight: This unit is part of Understanding Trading, Customer Accounts and Prohibited Activities. The full section accounts for 23 scored questions (31% of the exam). The official outline does not assign a separate question count to this unit.
What You'll Learn
- How long it takes for trades to finalize, including T+1 and same-day settlement
- The three ways securities are held: street name, the Direct Registration System (DRS), and physical certificates
- Corporate events that affect shareholders, including splits, mergers, and tender offers
- How shares and prices adjust during stock splits and reverse splits
- How options and open orders change after corporate actions
- The broker-dealer's obligation to forward corporate communications and meet deadlines
- How proxy voting works, and what brokers can and cannot vote on for customers
Why This Matters
Every securities transaction has two sides: executing the trade and settling it. Understanding settlement mechanics prevents costly errors, while knowing how corporate actions work helps you protect client interests. The exam frequently tests settlement time frames, the street name concept, stock split calculations, and the distinction between routine and non-routine proxy voting matters.
Let's start with how trades actually settle: the transfer of securities and payment between buyer and seller.